Steps You Can Take Now
“Ask five economists, and you’ll get five different answers – six if one went to Harvard”- Edgar Fiedler.
Even if you factor out volatile food and energy costs, core inflation rose to 6.4% over the 12 months ended in February, the highest level since August 1982. And between you and me, we think that’s a very conservative number. Inflation can hit you in many ways. Inflation that leads to a recession or depression can force you to have to survive on your preps just like you might after a disaster. War in Ukraine and economies already struggling to recover from the lockdowns don’t help keep us safe from the recession looming over us. Simply put, a more expensive world erodes demand. An erosion of demand slows production and scales back operations—manufacturers slow production. Farmers and ranchers scale back operations even during times of food scarcity. This, in turn, lowers Gross World Product and stokes demand. This all combines to create a global recession. As I will show in this video, some countries will be able to weather that storm by shifting production and pivoting.
We have to be honest with you, this is a long video, but you must have a complete understanding of what is going on right now, so you can properly prep for what’s to come. We have heard words like hyperinflation bantered about, and we think some people really don’t understand inflation. In this blog, we will take a deep dive into the inflation we are experiencing, explore the factors that could cause it to get even worse, and provide tips for what you can do to insulate yourself from its most harmful effects. There’s much to examine here, so let’s unpack this…
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INFLATION & HYPERINFLATION, WHICH IS IT?
The last measure of 2022 was an inflation rate of 7.9%, which is far below the threshold to be termed hyperinflation. In 2021 it was 7%, which jumped 5.6% over 2020’s numbers. There are many reasons for the increase, and we will cover some of the significant factors later in this video. To put this in stark contrast, imagine you had a 100 dollar grocery bill 2-years ago. Today that grocery bill would be $115. If this were a period of hyperinflation, that bill would be $150 ot $200 just this year. So, while some goods are experiencing a hyperinflationary rise in price, we are not yet in a period of hyperinflation.
There are four main types of inflation, categorized by their speed. They are “creeping,” “walking,” “galloping,” and “hyperinflation.” Creeping is where prices just slowly go up over a long period. It’s usually around 3% or less per year. Your Cost Of Living Increase is supposed to compensate for that, and creeping inflation is widely believed to be a sign of a good economy. When inflation is between 3 and 10% per year, we are in a phase called Walking Inflation. That is where we are today. This heats up the economy, and people buy more than they need to avoid the higher prices of tomorrow. That increases demand which outstrips supply, and wages can’t keep up to adequately fill wallets. Keep in mind that the Federal Minimum Wage as an economic tool to control inflation and stoke economic growth hasn’t been raised at the Federal level since July of 2009 – 13 years ago. That increase may have been why 2009 ended the year with a negative 4.6 deflation.
We defined hyperinflation, so the last type to know is galloping inflation. That’s where inflation rises at 10% or more, shy of 50% per year. At that point, money loses value very quickly. Business and employee income can’t keep up with costs and prices. Foreign investors bail out of the country, and significant regime change is possible. This is big trouble for a single country, but when several countries all suffer from galloping inflation simultaneously, well, we really don’t know what the effects of that are. At the least, a global recession occurs. At the worst, a global economic collapse requiring a monetary reset could occur.
DEFLATION
When a recession occurs, governments and central banks respond with fiscal policy and monetary policy initiatives to stimulate national economies and reduce financial system risks. Typically, this means pumping money into the system and holding down interest rates. That has worked in the past to pump the brakes on the downhill slide. The problem today is that interest rates have been brought so low for so long that there isn’t much room to knock them down. In early 2020 they were brought to just a quarter of a point, which artificially stoked the economy but rendered the Keynesian tool for control of a recession useless in future years.
Coming out of the COVID-Recession period, the Fed has tried to ride the momentum by seizing the opportunity to raise the interest rate and restore this recession-control tool. The Fed raised the target for the fed funds rate by a quarter-point to 0.25%-0.5% during its March 2022 meeting for the first time in three years and signaled ongoing rate hikes ahead. The Fed now sees rate hikes at each of the six remaining meetings this year, with the fed funds rate reaching 1.9% by year’s end. In all honesty, for the interest rate to effectively pump the brakes on an economy sliding into recession, it needs to be greater than 2%.
ASSET INFLATION, SHRINKFLATION, DEMANDFLATION
We have covered Shrinkflation in other videos, so we won’t here. It is where the box or package got smaller, but the price stayed the same. You might have seen this with your boxes of cereal. Shaving a few ounces off a product can save the company millions of dollars and hopefully fools you, the consumer, into believing nothing has changed. We don’t need to cover Shrinkflation because we are sure you have seen that and probably Asset-Inflation every day over the last few years.
The final term is Demandflation, and you may not have heard of that one because we are coining the term here to explain when a company may not feel too severely of an inflationary hit, but they still seize upon the strained supply and demand climate to raise prices and maintain profits. These are the companies you can see side-by-side articles about the terrible need to raise prices because of costs next to an article on that same company’s record profits that year. Sometimes these price increases are more in anticipation of future expenses. Sometimes they have orchestrated price-fixing where competitors agree to all adjust prices. Whatever the reason and whatever you call it, Demandflation stokes inflation pressures. It makes the whole situation much worse for the country and horribly bad for the average consumer.
So, to sum up, where we are at with our new understanding of all these terms, most of the G20 countries, representing 85% of the Gross World Product (GWP), are experiencing a walking inflation rate manifesting in the form of asset-Inflation and complicated by demandflation and multiple other causes. It is at least on par with the Great Global Recession that occurred between 2007 and 2009. At its current rate and given the number of new causes and complexities, it is on course to far exceed that economic slowdown. It is just below the threshold of hyperinflation, but it is pretty darn close. It feels like it because it comes on swiftly and is expressed so powerfully in particular asset classes: food and fuel. It probably meets the definition of hyperinflations in some countries, and it could meet that threshold of a 50% or more increase if we continue to see an escalation of the root causes.
WHAT’S CAUSING THIS?
As fast as we can cover, here are the three major contributors to this growing problem, which are also the things you should monitor to determine how far the global economy, therefore your economy, will slide.
COVID-RECESSION
Just as COVID begins to recede a little from the spotlight, the economic recovery has failed to get back into full swing for the second leading cause– the threat of a global war.
RUSSO-UKRAINIAN CONFLICT
This can be said for natural gas and oil exports as well. Russia exports 72.6 billion dollars worth of crude oil, second to only Saudi Arabia. Sanctions have throttled that back, though many countries are dependent upon it. Russia is the largest exporter of natural gas, with America a close second. Those pipelines have been shut down from Russia. Again, can countries pivot from or compensate for the loss? A by-product of natural gas production is fertilizer, and the world needs fertilizer to sustain its food production. The yield of a harvest plummets dramatically if the seeds are sown with merely a prayer. Fertilizer prices have been steeply rising for years. Bad weather like Hurricane Ida interfering with shipments and shutting down ammonia plants near the U.S. Gulf Coast raised prices. China halted exports of phosphate last July to ensure its own supply. Even Potash problems in Canada and Belarus complicate the fertilizer market and drive prices skyward. When farmers can’t purchase inexpensive fertilizer, they scale back crops, have to plant different crops or suffer crop failures at a higher rate.
In a nutshell, the Russo-Ukrai nian conflict derailed the global COVID-Recession recovery efforts.
GROWING CHINA
China has become so large, such a massive consumer of resources, and a hoarder of grains and energy, that it is simply pushing other countries away from the table by consuming their possible share of the global market. This causes significant asset inflation, which contributes to the larger inflation problems being felt by other countries.
WHAT CAN YOU DO?
PREP YOUR FINANCES
Do a personal financial audit and cancel any service or subscription you haven’t used in the last 30-days. Most will let you back in without any re-up fees if you change your mind later. What you do to prep your finances will have to be up to you. We are not a financial advisor of any kind, and it’s impossible for me to know your financial situation. Still, we know enough to tell you with confidence that your finances are a critical prep. If you have extra money, precious metals, long-term bonds, and now crypto are often seen as great ways to weather economic downturns. As a prepper, there is value in precious metals, and currently, crypto mainly as a means to transfer wealth from one unstable country to another. For example, there are quite a few Russian buyers at this very moment securing properties in Turkey and paying in gold since the rouble is frozen on the world stage. Consult some of my other videos about surviving an economic collapse or another great depression to learn more, and don’t neglect to prep your finances.
PREPPING VS. HOARDING
So, while the prepper may resemble a hoarder, he isn’t. Though getting last-minute preps in order might find a prepper amidst the hoarders and herd to try and get their supplies, the ultimate goal of the prepper is to be ahead of the herd so as not to compete with the hoarders when SHTF happens. If a prepper is alongside the desperate masses fighting over the last bag of flour, sugar, or beans, he hasn’t been prepping well to begin with. Prep with a plan in hand with the ultimate goal of having enough water, food, energy, medicine, and other core pillars of preps in place to weather any storm, and at the very least, enough to survive the aftermath of any crisis or disaster that stretches out into several weeks.
WORK A PLAN
Prepping for the broadest range of disasters, from natural to manmade, will position you to survive through an extended aftermath of a range of possible collapses of societal order. If you have the food and water set aside to survive a hurricane and its aftermath, for example, it will surely come in handy if you suffer a job loss, a period of hyperinflation, or even civil unrest. Working a plan takes you beyond a checklist and sets you up to endure a broad range of life’s calamities. Get my plan or someone else’s, but get a plan. Prepping is planning– planning for an uncertain future.
CONCLUSION
There is absolutely no denying that we are experiencing extreme inflation right now. It hasn’t quite risen high enough to meet the requirements to be termed hyperinflation, but it’s getting there, and there are more than enough potential catalysts in the world today to push it over that cliff. This time, though, it’s not confined to one country. It’s impacting most of the largest economies on the planet. You should prep your finances along with your other preps now to keep from being part of the panicked herd. Prep with a plan in hand, and understand what to monitor to know if the climate out there and the prospects for your country’s economy will get better or worse.
If you would like more information on this topic, consider one of these videos, and please subscribe to this channel.
As always, stay safe out there.
CARD LINKED VIDEOS
Prepping for an Economic Collapse – https://youtu.be/092QYqDm9sI
Surviving A Great Depression – https://youtu.be/CIpOpXiaoAw